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Assume that the one - year interest rate is 3 % p . a . in the UK and 2 % p . a .
Assume that the oneyear interest rate is pa in the UK and pa in the Euro area. Also,
assume that the current spot exchange rate of one pound to the euro is and that the
corresponding oneyear forward exchange rate is
ii A UK investor has to invest for one year either in the Euro area or the UK Using
the above information, determine which investment will generate a higher return.
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